Natural Gas Services Group, Inc. (NYSE:NGS), a leading provider of gas compression equipment and services to the natural gas industry, announces its financial results for the three and nine months ended September 30, 2016.
Revenue: Total revenue was $16.2 million, a decrease from $21.2 million for the three months ended September 30, 2016 compared to the same period ended September 30, 2015. This change was mainly attributable to a decrease in rental revenue due to reduced rental utilization, competitive pricing pressure and generally lower activity in the upstream oil and gas industry because of lower commodity prices. Total revenue decreased between consecutive quarters by $1.0 million to $16.2 million from $17.2 million, due to the same aforementioned reasons. On a nine month year-to-date basis, revenues were down from 2015 by $15.2 million.
Gross Margins: Total gross margin for the three months ended September 30, 2016 decreased $2.7 million to $9.4 million from $12.1 million for the same period ended September 30, 2015. However, total gross margin as a percentage of revenue increased to 58% for the three months ended September 30, 2016 compared to 57% for the same period ended September 30, 2015. This increase was the result of generally higher margins on rental and service and maintenance revenue. Sequentially, gross margin was $9.4 million for the three months ending September 30, 2016 compared to $9.5 million in the three months ended in June 30, 2016. Gross margin percentages increased to 58% from 55% the previous quarter, driven primarily by higher gross margins in all of revenue streams, particularly rentals. For the comparative nine months ended September 30, total gross margin decreased to $30.7 million from $40.2 million.
Operating Income: Operating income for the three months ended September 30, 2016 was $1.8 million, compared to the prior year’s third quarter of $3.8 million. This decrease was due to a reduction in rental revenue and sales gross margins. Sequentially, operating income remained flat at $1.8 million, for the three months ended September 30, 2016 and June 30, 2016. Operating income for the nine months ended 2016 was $7.5 million compared to $10.5 million for the same period in 2015.
Net Income: Net income for the three months ended September 30, 2016 decreased to $1.5 million compared to net income of $2.6 million for the same period in 2015. Sequentially, net income increased to $1.5 million from $1.3 million primarily due to the application of research and development tax credits. For the comparative nine months ended, net income decreased to $5.3 million from $6.9 million.
Earnings Per Share: Comparing the third quarter of 2016 versus 2015, earnings per diluted share was 12 cents down from the 20 cents. Diluted earnings per share increased to 12 cents from 10 cents between sequential quarters. On a nine month year-to-date basis, earnings per diluted share decreased to 41 cents from 54 cents.
Adjusted EBITDA: Adjusted EBITDA decreased $2.1 million to $7.3 million or 45% of revenue for the three months ended September 30, 2016 versus $9.4 million or 44% of revenue for the same three months ended September 30, 2015. Adjusted EBITDA decreased approximately $39,000 in the sequential quarters and increased relative to revenue to 45% from 42%. For the nine months ended September 30, 2016, adjusted EBITDA decreased $8.3 million to $23.9 million or 43% of revenue compared to $32.2 or 46% for the same period ended September 30, 2015. Please see discussion of Non-GAAP Financial Measures – Adjusted EBITDA, below.
Cash Flow: At September 30, 2016, cash and cash equivalents were $61.2 million with a bank debt level of $417,000, all of which was classified as long term. Positive net cash flow from operating activities was $29.5 million during the nine months ended 2016.
Commenting on third quarter 2016 results, Stephen C. Taylor, President and CEO, said:
“Although our markets continue to be very competitive, I think NGS had a notable quarter. The rate of decline in our rental utilization has slowed and, in spite of revenue declines, our gross margin and operating income dollars were essentially flat between quarters. Our rental gross margins were at a ten-year high of 66%, our compressor sales backlog grew, we posted higher earnings per share this quarter than last and we generated positive free cash flow at a rate of 55% of this quarter’s revenue. There are some indications of a tightening market with the higher commodity price, but it has not fully settled into our business yet. If present trends continue we may be in the bottoming of the cycle, but since our production oriented activities tend to lag market upturns, I think we are still looking into 2017 before any definitive recovery will be seen.”
Selected data: The table below shows revenues, percentage of total revenues, gross margin, exclusive of depreciation, amortization, and gross margin percentage of each of our business lines for the three and nine months ended September 30, 2016 and 2015. Gross margin is the difference between revenue and cost of sales, exclusive of depreciation and amortization.
Conference Call Details:
Teleconference: Thursday, November 3, 2016 at 10:00 a.m. Central (11:00 a.m. Eastern). Live via phone by dialing 877-358-7306, pass code “Natural Gas Services”. All attendees and participants to the conference call should arrange to call in at least 5 minutes prior to the start time.
Live Webcast: The webcast will be available in listen only mode via our website www.ngsgi.com, investor relations section.
Webcast Reply: For those unable to attend or participate, a replay of the conference call will be available within 24 hours on the NGS website at www.ngsgi.com.
Stephen C. Taylor, President and CEO of Natural Gas Services Group, Inc. will be leading the call and discussing the financial results for the three and nine months ended September 30, 2016.
About Natural Gas Services Group, Inc. (NGS):
NGS is a leading provider of small to medium horsepower, wellhead compression equipment to the natural gas industry with a primary focus on the non-conventional gas and oil industry, i.e., coalbed methane, gas and oil shales and tight gas. The Company manufactures, fabricates, rents, sells and maintains natural gas compressors and flare systems for gas and oil production and plant facilities. NGS is headquartered in Midland, Texas with fabrication facilities located in Tulsa, Oklahoma and Midland, Texas and service facilities located in major gas and oil producing basins in the U.S. Additional information can be found at www.ngsgi.com.